Technology, organization, and complementarity: The factory system in the British industrial revolution

This dissertation offers a new explanation for the triumph of the factory system that links the older technology and transaction cost stories. Since workmanship and asset maintenance tasks were more difficult than output to monitor and directly compensate, factory owners introduced supervision and regulation of the shop floor as a means of ensuring that workers devote proper attention to them. I use the concept of complementarity to link together technological and organizational change. New machine technologies enabled production of more standardized products of higher quality, at lower cost. Installation of machinery also created expensive long-lived assets requiring maintenance. Thus investment in machinery, supervision of workers, and production of higher quality, more standardized products (collectively termed the “factory system”) formed a cluster of complementary activities that tended to be adopted together over time. Evidence from the literature, firm studies, and firm records of the British Industrial Revolution period are analyzed in support of this approach.